Major Aspects of Software Cost Estimation

It is well-known that software engineering is at the lead of the services that use outsourcing and outside contractors. Statistics say that the global contract value ranges from $63.5 billion to $159.1 billion and it includes software products development services as well.

So, estimation of your software product development plays a crucial role in your business planning and you should choose an agency or a contractor with the right approach for estimation of a software project.

Total contract value of the IT outsourcing market (2000-2019 years)

Besides, the common issues of the most famous failed projects faced are delivery delays and cost overruns. These disadvantages had 7 out of 12 projects. So, the lack of information can lead to inaccurate estimation of time and cost of the project and, as a result, to the failure in meeting these requirements.

There is a formula that experienced engineers use when estimating a software project: they define time, cost, and effort and double these estimations. However, for making an accurate estimation it is necessary to have proper documentation, and specified requirements for the project. One more significant moment is that the estimation shouldn’t be made too early.

Let’s look at the four major aspects of the software project estimation process:

• The specifications. It should be detailed properly since the accuracy of the estimation is in direct ratio to the quantity and quality of the information on the project scope.
• Graphic design requirements. The complexity of graphic design has a great influence on the development process and can enlarge the cost, time, and effort required for software development.
• Technologies to be used. The choice of technologies depends on the project specifics. In some cases, developers should use complex toolsets, third-party APIs, and develop custom tools. That is why it is necessary to include a research part of the project in the estimation.
• Experience and level aspect. Senior, middle, and junior developers need different amounts of time for completing the same project. Also, urgent deadlines can require involving several engineers in a project. 

A proper estimation can answer these questions, that is why the right choice of methodology and approach to the estimation and further management of your software product development is the vital thing.

Software project estimation in a non-Agile environment

Non-Agile practices are notable for fixed functionality and scope and variable time and cost. This peculiarity leads to a number of issues:

• The functionality and scope of the project can change in the software product development process. There is a chance that the functionality you fixed won’t align with your customer’s expectations perfectly or make the best value for the business. In most cases, the desired values are determined in the development process.
• Variable cost can lead to an uncontrollable return on investment and we won’t achieve it at the desirable level. Unspecified risks and changes always cause an increase in the cost. Due to it, there appears a need for involving additional developers in a project or increasing the working time for the team of developers. It is better to avoid such decisions.
• Time is also of the essence and when this factor varies it can spoil business plans. For example, we can miss the most successful date for launching the product in the market and in a specific industry.

This approach works well for well-defined projects with a small scope and low complexity. In this case, we talk about creating an accompanying solution like a landing page, a simple software solution for automating a certain process. Such projects have supplementary character and don’t solve major business tasks.

Software project estimation according to Agile principles

Our business plans can be changed because of external and internal processes in the software development

The cost of the project depends on two elements: time and people. Increasing time causes increased costs for keeping people for a longer period of work. Involving more people in your project, increase the cost of the project and the software product itself. These are the reasons why the Agile approach uses the principles of fixed time and number of developers and variable scope.

The successfully completed project should result in a software product that perfectly meets customers’ needs and brings desired value to the business. 

Software project estimation based on Agile methodology keeps a focus on the following things:

• Fixed price milestones. The software product development process is devices into smaller parts that the developers complete in a logical order and all these parts result in a fully functional product. Each completed part is priced according to the agreed price. Upon the completion of one part, the next part is planned and estimated with consideration of the experience gained while developing the previous part. It allows the comfortable implementation of new features or changes that a customer can require.
• Early termination. It is possible to end the project at a suitable moment if a customer achieved the major desired goals and only secondary plans are left. This point allows a customer to improve their business plans, manage their investments effectively, and save time. As a result, a customer can get a viable product with all the major and necessary features in a timely manner and reduce the time for launching the product. 
• Variable changes. The agile approach is based on the changeable character of the development process. It is impossible to know everything and predict the exact march of events while developing a software product and building its parts. Success in product delivery is based on the consideration of changes that are based on customers’ feedback, their wishes, and business needs. When an iteration is fulfilled, changes can be shifted to old features that are no longer in priority. If a change brings value, there won’t be any further cost. In case the change doesn’t bring strong value, additional work is planned and put into a backlog. 
• Supplementary work. In the Agile environment, it is possible to add milestones for achieving the goals that would not be achievable under the terms of a fixed price contract. So, the existing contract can be expanded by adding new parts of the development process and they should be priced and estimated. Also, they can be reverted to time and materials.
• The ranges of estimation. The Agile approach implies a couple of variants of the estimation range: a duration range and a feature range. It means that, for instance, we can define the length of the project in a range of 5 to 13 weeks and approximately predict how many features can the software product need to be viable. However, as we remember, adding duration leads to increased cost since it requires involving developers for longer in a project and this means that they can’t work on another project. It’s better to range features in compliance with the end goal of the product development and let the project scope be a variable component. 

Agile practices allow for widening or lessening the duration and scope of the project in line with the customer’s business needs. Besides, there is always a possibility of adding new parts to the scope at a suitable moment.